Time Magazine 2015 Annual Report Download - page 65

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (Continued)
• Operating lease obligations — represents the minimum lease payments under noncancelable operating leases,
primarily for the Company’s real estate and operating equipment.
Most of the Company’s other long-term liabilities reflected in the accompanying Consolidated Balance Sheet have
been included in Network programming obligations in the contractual obligations table above, the most significant of which
is an approximate $816 million liability for film licensing obligations. However, certain long-term liabilities and deferred
credits have been excluded from the table because there are no cash outflows associated with them (e.g., deferred revenue) or
because the cash outflows associated with them are uncertain or do not meet the definition of a purchase obligation
(e.g., deferred taxes and tax reserves, participations and royalties, deferred compensation and other miscellaneous items).
Contingent Commitments
The Company has certain contractual arrangements that require it to make payments or provide funding if certain
circumstances occur. See Note 16, “Commitments and Contingencies,” to the accompanying consolidated financial
statements for further discussion.
Customer Credit Risk
Customer credit risk represents the potential for financial loss if a customer is unwilling or unable to meet its agreed
upon contractual payment obligations. Credit risk in the Company’s businesses originates from sales of various products or
services and is dispersed among many different counterparties. At December 31, 2015, no single customer had a receivable
balance greater than 6% of total Receivables. At December 31, 2015, the Company’s exposure to customer credit risk is
largely concentrated in the following categories (amounts presented below are net of reserves and allowances):
• Various retailers for home entertainment product of approximately $0.5 billion;
• Various television network and SVOD operators for licensed TV and film product of approximately $4.4
billion;
• Various cable system operators, satellite service distributors, telephone companies and other distributors for
the distribution of television programming and/or streaming services of approximately $1.7 billion; and
• Various advertisers and advertising agencies related to advertising services of approximately $1.0 billion.
For additional information regarding Time Warner’s accounting policies relating to customer credit risk, refer to
Note 1, “Description of Business, Basis of Presentation and Summary of Significant Accounting Policies,” to the
accompanying consolidated financial statements.
MARKET RISK MANAGEMENT
Market risk is the potential gain/loss arising from the impact of changes in market rates and prices, such as interest
rates, foreign currency exchange rates, or equity prices, on the value of financial instruments.
Interest Rate Risk
Time Warner has issued fixed-rate debt that at December 31, 2015 and 2014 had an outstanding balance of
$23.572 billion and $21.809 billion, respectively, and an estimated fair value of $26.062 billion and $26.171 billion,
respectively. Based on Time Warner’s fixed-rate debt obligations outstanding at December 31, 2015, a 25 basis point
increase or decrease in the level of interest rates would decrease or increase, respectively, the fair value of the fixed-rate debt
by approximately $570 million. Such potential increases or decreases are based on certain simplifying assumptions, including
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